Finance Committee on Feb. 27th, 2007

[Pierre Paquette, Bloc, Joliette, QC]

I'm speaking to Mr. Langlois, or others.

Mr. Plexman told us a little earlier that we had to help the oil sands industry because we had to ensure we had a certain degree of energy self-sufficiency, since oil comes in large part from countries that are not very safe, like Iran or Irak. Even Venezuela may appear to be a problem for some.

It seems to me those arguments instead justify not providing financial support for development of the oil sands, since the companies that invest in the oil sands have the advantage of being able to operate in a safe and democratic country.

Doesn't that advantage mean that, even if we eliminate accelerated depreciation measures, they'll still want to invest in the oil sands?

[Jean Langlois]

That's correct. Once again, if you compare the situation to that of the renewable energy and energy efficiency sectors, the benefits aren't there. In fact, our presenter — an independent commentator whose name I forget — told us that the Canadian sector didn't have the capability to deploy certain technologies. He gave us the example of wind energy. In his opinion, we'll still be depending on the oil industry for roughly 100 years because our renewable energy sector — and I'd say the efficiency sector as well — currently does not have the capability to deploy, to implement these technologies on a major scale. Consequently, if our objective is energy self-sufficiency and less dependence on a sector that apparently needs this kind of tax benefit, we should instead invest in renewable energies and energy efficiency.

[Pierre Paquette, Bloc, Joliette, QC]

Do I still have a little time, Mr. Chair? I'd like to speak to Mr. Plexman.

[The Vice-Chair, Liberal, Massimo Pacetti]

You have two minutes left.

[Pierre Paquette, Bloc, Joliette, QC]

If I understand correctly what you're telling me, the international price of oil isn't high enough for some oil sands deposits to be profitable, or at least as profitable as the deposits that are easier to exploit. Isn't that similar to the argument that people gave us in the 1960s for keeping our coal mines?

At the time, the price of oil was so low that it was much more costly to produce a tonne of energy with coal. People said we had to keep those jobs, in Cape Breton, among other places, and we subsidized them. However, a lot of people, particularly in the investment world, said we should let the market determine what should stay open, particularly since coal, as we know, pollutes.

I get the impression that, if we want to let the market operate, the day the price of oil is high enough to justify developing the oil sands, without preferential treatment, consumers will pay for that. I admit that you haven't yet convinced me. I'll give you one last chance; you have 30 seconds to do it.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Plexman, can you just quickly respond?

[Robert Plexman]

Okay. This will take maybe 32 seconds.

You're right about the grade of the resource, and it gets back to your question about the oil sands economics. Syncrude, the Shell part that you saw, and Suncor are the best deposits. They're the ones that were developed first.

In the presentation I left for you, there are a couple of charts looking at the quality, and there are changes in the quality. This is basic resource economics. As the price goes up, the stuff that wasn't economical before starts to become economical.

You still have companies buying leases. You have Royal Dutch spending hundreds of millions of dollars on leases. They're still in the very early research stage of studying how to get this stuff out. It's oil and carbonate rather than oil sand.

So that's what you get when you have this increase in oil prices. Does that mean that the cost doesn't go up? Well, no. It costs more. There's more competition. I guess that's the point I'm trying to make, that as this industry is developed, we just see more and more competition, which is great for our business.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Plexman.

[Robert Plexman]

Thank you.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Wallace, for four minutes, and then we'll try to wrap this up.

[Mike Wallace, Conservative, Burlington, ON]

Thank you, Mr. Chairman.

I've done a little bit of reading on this, and there is a history to the accelerated capital piece that we're dealing with today. I want to remind everyone that it started way back in the early seventies. Oil sands were added in 1996 by the Liberal Party. I think the Liberal Party might have been in power in 1974, actually.

And this doesn't just apply to oil sands, it applies to all mining, which we were reminded about earlier, whether it's diamond mines in the north, potash in Manitoba, or mining in Quebec or any other province. For those highly capital-intensive industries that take a long time to get up and going, it is a tax system that is used to try to generate economic wealth in that area and development in that area.

On the environment, which we've heard a little bit about today—I'm pulling a little Thierry here—we've heard a lot about having the oil sands pay their way in terms of the environment and trying to have them do something to be more environmentally sensitive. I think they're working in that way, but then we're penalizing them by taking away an opportunity for them to invest in new capital and new innovation, based on what's been discussed here today by a number of groups.

It makes no sense to me that in an area where we think there needs to be improvements, we take a tool away for them to actually invest in those improvements, and I think a reduction in the accelerated capital cost allowance would do that for that industry.

The other issue that we talked about today was cashflow. We have an example here of the oil sands economy, a sample of Syncrude, at almost $59 a barrel. We heard testimony earlier that a mere seven years ago, it was at $20 a barrel. It wasn't that long ago, then, that there was that kind of fluctuation.

We also heard, at the very same time, that it takes seven to up to twelve years to get one of these projects off the drawing board, into the ground, and actually producing revenue. This capital tax allowance only happens when the revenue is generated. So there's a big investment, both domestically and to attract capital from around the world, to try to get this here.

If we thought accelerated capital allowances didn't work, then this is my question to the rest of the committee, and then I have a question for the panel.

I just want to point out to the committee that there is a report on manufacturing, “Manufacturing: Moving Forward–Rising to the Challenge”. It was supported by every party in the House, including the Bloc. I've looked at this, and the Bloc, which brought this motion to begin with, talked about increasing the “capital cost allowance for machinery and equipment used in manufacturing and processing and equipment associated with information, energy and environmental technologies”.

So you agree that they work. You want them to happen. They are working in this environment. They are working in this industry. Even in your additional supplementary opinion, which is not opposite what the recommendations are—you say that right in your supplementary report—you state, “The government must make a rapid about-face and propose a set of measures to provide better support for industry.” We are doing that and we will continue to do that.

You name a number of industries, including furniture and forestry. I'm assuming that if it's good enough for oil, you understand that reducing the upfront costs in companies on capital cost allowance is important for them to survive.

Is that about four minutes, then?

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you, Mr. Wallace, for addressing those comments through the chair. I really appreciate that.

On that note, just before we end, Mr. Plexman, I just have a quick question on flowthrough shares. I understand that the mining industry uses flowthrough shares quite a bit. That means passing on a lot of the eligible income tax deductions. Is accelerated CCA part of those? Are you aware of that?

[Robert Plexman]

I don't know.

[The Vice-Chair, Liberal, Massimo Pacetti]

Mr. Roberts, are you aware? Do you know?

[Bill Roberts]

I can't respond to that. I don't know.

[The Vice-Chair, Liberal, Massimo Pacetti]

Thank you.

Thank you to the witnesses for coming forward, and thank you to the witnesses in Calgary as well. Thank you for taking time out of your day.

If we can just continue....

Yes?

[Pierre Paquette, Bloc, Joliette, QC]

Could we have a brief report on this subject on Thursday?

[The Vice-Chair, Liberal, Massimo Pacetti]

I'm going to turn the floor over to Mr. St-Cyr, who has requested it, or to you, Mr. Paquette.

Go ahead.

[Pierre Paquette, Bloc, Joliette, QC]

We should make a recommendation: either we grant all industries the 100 percent accelerated depreciation, or we disallow that depreciation for the oil sands industry.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

Mr. Chair, I simply wanted to ensure that, pursuant to the resolution passed by the committee, we have at least a half hour on Thursday to pass recommendations for the minister, and to table them in the House on Friday, before the budget is presented. That shouldn't necessarily take long. We have perhaps two or three recommendations that we'll have to discuss. I suppose we can agree quite quickly. Most of the parties, if not all of them, have already taken a position.

[The Vice-Chair, Liberal, Massimo Pacetti]

I have the motion here.

Mr. St-Cyr, I don't have it in French.

The last paragraph says “one session before March 1 to consider and prepare its recommendations to the minister”.

I leave it up to the committee. The other problem is that if we do choose to meet on Thursday and we do decide on what recommendations we're going to recommend, we'll never get things translated and tabled in the House. That has to be taken into consideration.

I will allow you to speak, and then I will allow other members to speak.

Monsieur St-Cyr.

[Thierry St-Cyr, Bloc, Jeanne-Le Ber, QC]

We finish at 1:00 p.m. on Thursday. So we could continue the meeting for a while. To expedite matters, we can also present our recommendations, which are already translated. Once they've been agreed to, all we'll have to do is present them in report form. That report shouldn't necessarily contain all the evidence; it could contain only the recommendations tabled in the House so that the committee makes its proposals known to the minister before he prepares his budget.

[The Vice-Chair, Liberal, Massimo Pacetti]

If the committee decides...

If the witnesses want to go, you can go.

If the committee decided that all parties should table a report, and if they were already translated, that would be possible. But if each party produces an untranslated report, that wouldn't be possible, since we have to anticipate at least 24 hours for translation and the report must be tabled at 10 o'clock Friday morning. I don't see the logic in doing it. I'll leave it up to committee members to make a decision.

Mr. Thibault.

[Robert Thibault, Liberal, West Nova, NS]

I don't know the details of my colleague's motion, but, if he wishes, he can submit a notice of motion today. If agreed to, that motion would be presented in the House, which would report without necessarily using the committee's staff. We can do it in the form of a motion.

[The Vice-Chair, Liberal, Massimo Pacetti]

A motion isn't even necessary. If we all decide that the parties can table a report on Thursday, each party is free to do so. We can do what we want, as members.